Question
A company had EBIT of Rs.3,70,000. The interest expense
was Rs.45,000. The tax rate is 30%. The company paid Rs.31,000 dividend. What is the retention ratio of the firm?Solution
Retention ratio = (net profit – dividend) / net profit Retention ratio = ( EBIT – interest – tax – dividend) / net profit Retention ratio = (370000 – 45000 – 97,500 – 31,000) / 2,27,500 Retention ratio = 86.37%
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